Oil Long Set-Up
Trader Moe | Feb 07, 2016 01:31AM ET
Oil Falling Megaphone (Blue) Targets Roughly the 200 dma on Breakout
Oil has just put in a falling megaphone formation (blue on chart above), complete with a classic inverse H&S bottom. All that’s needed to complete the formation is a breakout. A breakout from the falling megaphone would also be a breakout from the inverse H&S.
Both formations have a minimum target of roughly the level of the top touch on the falling megaphone top, which is now roughly at oil’s 200 dma at roughly 46-47.
The Inverse H&S for the Red Falling Megaphone is Also a Bottoming Pattern at the Blue Megaphone Bottom
The top chart shows a large gray falling wedge bottom on oil, but there’s another way to look at the chart. Oil has also put in a classic megaphone bottom (blue on chart directly above).
The inverse H&S for the falling megaphone is also an inverse H&S at the blue megaphone bottom.
Oil was legal for a downwards breakout from the blue megaphone, but a downwards breakout wouldn’t usually stop to form an inverse H&S at the megaphone bottom.
The inverse H&S up against the blue megaphone bottom strongly suggests an ultimate target of the blue megaphone top.
I’ve heard the same stories as you of an overwhelming oversupply of oil, but the chart says what it says. Again, the set-up is to go long on the breakout from the falling megaphone and little inverse H&S. If oil should reenter the falling megaphone after breakout, it’s a set-up to short again.
I wouldn’t be surprised to see oil retrace to its 200 dma and spend some time moving sideways there, maybe forming a triangle or megaphone right shoulder on the potential inverse H&S with a neckline there.
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